Strong outlook for NZ dollar, despite election jitters

Local businesses expect the NZ dollar to rise against the US in the next year, but are also wary of short-term currency jitters caused by the election.

The NZ dollar is expected to remain strong against the US over the next year. Photo: 123rf.com

The ASB Bank's latest survey shows companies expect the kiwi to be around 75 US cents in a year's time - a stark turnaround from a similar survey three months ago, which showed a forecast of 65 US cents.

ASB chief economist Nick Tuffley said the New Zealand currency should stay high as the United States and European Union take longer to normalise monetary policies and raise interest rates.

"Prospective additional US fiscal stimulus will be a long way off, with supportive domestic factors, including the elevated terms of trade and prospective OCR (official cash rate) hikes, likely to support the New Zealand dollar."

The survey also showed businesses were also protecting themselves against any sharp moves in the kiwi in the wake of the general election, with more than 80 percent looking at some form of hedging.

The resurgence of the Labour Party was a factor in the recent weakness of the New Zealand dollar, with polls showing the two main parties neck-and-neck, making a change of government possible after nine years of National-led administrations.

"Elections don't usually have a lasting effect, but they can move currencies around slightly and that does provide people with an opportunity to take advantage of those moves or insulate themselves against it," said Mr Tuffley.

The survey also showed that importers had been passing on the benefit of the New Zealand dollar's strength against the Australian currency by cutting their prices, while exporters had largely opted to absorb any higher costs in their margins.

In the past week, the kiwi has fallen below A90c for the first time since April 2016.